How US Manufacturers can Thrive Amidst Volatility and Uncertainty: Achieve Operational Flexibility

In today’s highly volatile global economy, US manufacturers continually struggle to respond more quickly and accurately to developments that could have a negative impact on their business or represent opportunities that could be a boon to the top line.

Overview

Such a response though, depends on an increasing amount of operational flexibility, which, in turn, typically requires new digital technologies, new skills and organization structures, and new ways of managing the enterprise’s physical assets.

We developed a new Accenture Manufacturing Flexibility Index, focused on the US, which enables us to compare companies, regions and industries on their performance—across digital technologies, physical assets, and talent and skills—and demonstrate the strong correlation between operational flexibility and business performance.

Read more to know how companies can achieve the flexibility that is vital to operating in a highly volatile world.

Background

The US data from our recent global study “How Leading Manufacturers Thrive in a World of Ongoing Volatility and Uncertainty," explored manufacturers’ views on several critical issues, including:

Recent and future growth and the sources of that growth.

Challenges that might affect their ability to achieve their growth goals.

How they are managing and investing in their operating model, physical assets and talent to help drive growth.

According to the study, both global and US manufacturing executives are optimistic about generating revenue growth this year and believe their top revenue markets will grow in the coming year.

These executives also told us that a key to achieving growth is operational flexibility, that is the ability to flexibly and dynamically move production from one existing facility to another, or to change the product mix at an existing facility to match demand.

In our new Manufacturing Index report, we reexamined the data with a formula that allowed us to measure how manufacturers based in the United States are faring in their pursuit of the operational flexibility that can help drive growth in today’s volatile business environment, and how their experiences compare with those of manufacturers with headquarters in other countries.

Key Findings

Based on our research, we identified the top three factors that play a dominant role in fostering operational flexibility:

The extent to which companies use digital technologies across their operations.

The ways in which companies manage their physical assets (i.e., manufacturing plants).

The strength of companies’ skills base and overall manufacturing workforce.

These three dimensions formed the basis of the Manufacturing Flexibility Index, which we found is strongly correlated with business performance. For instance, US companies that scored in the top half of the index overall were more likely than those in the bottom half to have, since 2011:

Grown by more than 10 percent (29 percent vs.12 percent);

Increased production by more than 10 percent (33 percent vs. 16 percent);

Top-half companies were more likely than bottom-half companies to anticipate growth of greater than 10 percent this year (36 percent vs. 9 percent) and to be highly optimistic the economies of their most important revenue markets will grow in the next year (67 percent vs. 26 percent).

US companies achieved an overall score of 35 on the index, which placed them slightly behind China and Brazil but substantially ahead of Germany and France.

The Midwest, conversely, was the lowest-performing region, with a score of 30—below the global average and closer to laggards France and Germany than to the leaders.

Companies in the Northeast, South and West of the United States achieved overall index scores of 36, 37 and 36, respectively—which places them much closer to leaders China and Brazil.

Analysis

Our Manufacturing Flexibility Index illustrates that:

Companies that excel in new digital technologies, new skills and organization structures, and new ways of managing the enterprise’s physical assets are more likely to develop the flexibility that can enable them to meet the volatility challenge head on—and, in the process, increase their global competitiveness and grow more strongly and more profitably.

The US regions scoring highest on the Manufacturing Flexibility Index were generally most likely to have posted strong overall revenue growth.

Midwest companies, which were most likely to struggle on all three dimensions (digital technologies, physical assets, and talent and skills), are largely responsible for preventing the US as a whole from matching the performance of the two emerging market powerhouses.

Recommendations

Manufacturers can take the following steps that may help:

Digital:

Implement a control tower to provide digitally enabled performance and decision support.